Pepco Holdings Reports Third-Quarter 2007 Earnings; Conference Call Scheduled
Thursday, November 01, 2007
Pepco Holdings, Inc. (NYSE: POM) today reported third quarter 2007 consolidated earnings of $167.6 million, or 87 cents per share, compared to $104.0 million, or 54 cents per share, in the third quarter of 2006. Excluding the special items described below, earnings for the 2007 quarter would have been $129.9 million, or 68 cents per share, compared to $111.9 million, or 58 cents per share, for the 2006 quarter. The weighted average number of basic shares outstanding for the third quarter of 2007 was 193.3 million compared to 190.7 million for the third quarter of 2006.
The increase in earnings for the third quarter of 2007 as compared to the 2006 quarter, excluding special items, was primarily due to higher distribution revenue and lower depreciation driven by the Maryland rate orders for Pepco and Delmarva Power issued in June 2007 and higher network transmission revenue due to higher rates in effect. At Conectiv Energy, higher earnings were driven by Merchant Generation and Load Service, primarily due to higher generation output, higher capacity prices, and improved hedge results. At Pepco Energy Services, higher earnings were driven by the retail energy supply business primarily due to more favorable congestion costs and higher electric volumes. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery and lower Energy Marketing margins at Conectiv Energy.
"Our results for the quarter reflect continued progress in executing our strategic plan," said Dennis R. Wraase, Chairman, President and Chief Executive Officer. "While Power Delivery experienced higher operating expenses, we benefited from infrastructure investments and constructive regulatory outcomes. Conectiv Energy’s generation output was up 30% over the 2006 quarter and Pepco Energy Services continues to steadily acquire load." He added, "We recently achieved another milestone in our infrastructure investment strategy with the approval of the 500 kV portion of our Mid-Atlantic Power Pathway project by the PJM Interconnection’s board of managers. This approval is a major step forward for this billion dollar project, allowing an extensive permitting and environmental review process to begin. The project will enhance electric reliability and improve transmission capacity in one of the most heavily congested regions of the country."
For the nine months ended Sept. 30, 2007, consolidated earnings were $276.4 million, or $1.43 per share, compared to $212.0 million, or $1.11 per share, for the same period in the prior year. Excluding the special items described below, earnings for the nine months ended Sept. 30, 2007 would have been $238.7 million, or $1.24 per share, compared to $216.2 million, or $1.13 per share, for the first nine months of 2006. The weighted average number of basic shares outstanding for the nine months ended Sept. 30, 2007 was 192.8 million compared to 190.2 million for the same period in the prior year.
The increase in earnings for the nine months ended Sept. 30, 2007, compared to earnings excluding special items for the same period in the prior year, was driven primarily by higher weather-related kWh sales at Power Delivery, higher distribution revenue and lower depreciation at Power Delivery driven by the Maryland rate orders for Pepco and Delmarva Power issued in June 2007, and increased Merchant Generation and Load Service margins at Conectiv Energy due to higher generation output and higher capacity prices. Partially offsetting these increases were higher operation and maintenance expenses at Power Delivery.
Third-Quarter Highlights
Operations
• Power Delivery electric sales were 14,590 gigawatt hours (GWhs) in the third quarter of 2007 compared to 14,732 GWhs for the same period last year. Cooling degree days (electric service territory) increased by 3% for the three months ended Sept. 30, 2007, compared to the same period in 2006. Weather adjusted electric sales were 14,234 GWhs in the third quarter of 2007 compared to 14,426 GWhs for the same period last year.
• On Oct. 17, 2007, PJM Interconnection’s board of managers approved PHI’s proposal to build a 230-mile interstate power line. The board’s approval to include the 500-kilovolt (kV) portion of the Mid-Atlantic Power Pathway (MAPP) in its regional transmission expansion plan allows PHI to begin an extensive multi-state permitting and environmental review process that must be completed prior to construction. The 500 kV portion of the MAPP line is expected to cost an estimated $1 billion and would be built in stages through 2014. PHI has proposed adding significant 230-kV support lines to connect with the new 500-kV line, bringing the estimated total cost of the project to $1.2 billion.
• Conectiv Energy's gross margin from Merchant Generation and Load Service was $99.2 million in the third quarter of 2007, compared to $69.0 million in the third quarter of 2006. The increase resulted primarily from higher generation output, higher capacity prices, and improved hedge results.
• Conectiv Energy's total generating output was 2,382 GWhs in the third quarter of 2007 compared to 1,830 GWhs in the third quarter of 2006. The increase resulted primarily from a warmer September in 2007 and improved unit availability at the Hay Road and Deepwater generating plants.
• Pepco Energy Services’ gross margin from Retail Energy Supply was $28.6 million in the third quarter of 2007, compared to $16.6 million in the third quarter of 2006. The increase was driven by more favorable congestion costs and higher retail electric volumes.
• Pepco Energy Services had retail electric sales of 5,510 GWhs in the third quarter of 2007, compared to 4,023 GWhs in the third quarter of 2006. This increase primarily reflects the acquisition of additional commercial and industrial customer loads.
Regulatory Matters
• On Sept. 19, 2007, the Maryland Public Service Commission issued an order approving a program to promote compact fluorescent light bulbs with cost recovery for the program through a surcharge. This program was approved in connection with PHI’s “Blueprint for the Future” program, which includes plans for demand-side management programs, advanced metering, and distribution automation.
• On June 13, 2007, Delmarva Power entered into agreements to sell all of its distribution assets and substantially all of its transmission assets in Virginia for an aggregate sales price of approximately $45 million, subject to closing adjustments. These sales, if completed, are not expected to result in a material financial gain or loss to Delmarva Power. The buyer of the distribution assets is A&N Electric Cooperative and the buyer of the transmission assets is Old Dominion Electric Cooperative. On Oct. 9, 2007, the Federal Energy Regulatory Commission approved the agreements needed for the completion of the sale of the transmission assets. On Oct. 19, 2007, the Virginia State Corporation Commission issued an order approving both transactions; the parties may appeal this decision within 30 days. Delmarva Power expects the transactions to close in the fourth quarter of 2007.
Other
• On Aug. 7, 2007, Pepco, Mirant and the objecting creditors entered into an agreement stipulating to the dismissal of the objecting creditors’ appeal of the settlement agreement to the Fifth Circuit. The appeal was dismissed by the Fifth Circuit on Aug. 8, 2007. Under the settlement agreement, Pepco has allowed Mirant to reject the back-to-back agreement relating to Pepco’s power purchase agreement with Panda-Brandywine. In exchange, Pepco has received a net amount of $414 million, which is being held in a restricted cash account and will be used to pay for above-market purchases under the Panda PPA. Pepco also received $70 million from Mirant in settlement of other Pepco damage claims against the Mirant bankruptcy estate. Of this payment, $33.4 million been recorded as a reduction of operating expenses in the third quarter of 2007, resulting in a $20.0 million increase to net income.
• On Aug. 1, 2007, Pepco entered into a settlement agreement with the Comptroller of Maryland pursuant to which Pepco received a refund of state income taxes paid in the amount of approximately $30.0 million, which was due to an increase in the tax basis of certain assets sold in 2000. The refund was recorded in the third quarter of 2007, resulting in a $17.7 million increase to net income.
Further details regarding changes in consolidated earnings between 2007 and 2006 can be found in the following schedules. Additional information regarding financial results and recent regulatory events can be found in the Pepco Holdings, Inc. Form 10-Q for the quarter ended Sept. 30, 2007, as filed with the Securities and Exchange Commission, which is available at www.pepcoholdings.com/investors.
Special Items
GAAP earnings for the third quarter 2007 include the following special items (after-tax), which management believes are not representative of the company’s ongoing business operations:
• Earnings of $20.0 million, or 10 cents per share, related to the Mirant bankruptcy damage claims settlement and
• Earnings of $17.7 million or 9 cents per share, related to the Maryland income tax refund settlement.
GAAP earnings for the third quarter 2006, include the following special item (after-tax):
• Charges of $7.9 million, or 4 cents per share, related to an impairment loss on certain Pepco Energy Services assets associated with its energy services business.
GAAP earnings for the nine months ended Sept. 30, 2007, include the following special items (after-tax):
• Earnings of $20.0 million, or 10 cents per share, related the Mirant bankruptcy damage claims settlement and
• Earnings of $17.7 million or 9 cents per share, related to the Maryland income tax refund settlement.
GAAP earnings for the nine months ended Sept. 30, 2006, include the following special items (after-tax):
• Earnings of $7.9 million, or 4 cents per share, related to a gain on Conectiv Energy's disposition of its interest in a co-generation facility and
• Charges of $12.1 million, or 6 cents per share, related to an impairment loss on certain Pepco Energy Services assets associated with its energy services business.
Complete press release with selected financial information.
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Pepco Holdings Inc. will host a conference call to discuss third quarter results on Friday, Nov. 2nd at 9:00 a.m. E.T. Investors, members of the media and other interested persons may access the conference call on the Internet at http://www.pepcoholdings.com/investors or by calling 1-800-901-5259 before 8:55 a.m. The pass code for the call is 66846949. International callers may access the call by dialing 1-617-786-4514, using the same pass code, 66846949. An on-demand replay will be available for seven days following the call. To hear the replay, dial 1-888-286-8010 and enter pass code 99780966. International callers may access the replay by dialing 1-617-801-6888 and entering the same pass code 99780966. An audio archive will be available at PHI's Web site, http://www.pepcoholdings.com/investors.
Note: If any non-GAAP financial information (as defined by the Securities and Exchange Commission in Regulation G) is used during the quarterly earnings conference call, a presentation of the most directly comparable GAAP measure and a reconciliation of the differences will be available at http://www.pepcoholdings.com/investors.
CONFERENCE CALL FOR INVESTORS
About PHI: Pepco Holdings, Inc., headquartered in Washington, D.C., delivers electricity and natural gas to about 1.9 million customers in Delaware, the District of Columbia, Maryland, New Jersey and Virginia, through its subsidiaries Pepco, Delmarva Power and Atlantic City Electric. PHI also provides competitive wholesale generation services through Conectiv Energy and retail energy products and services through Pepco Energy Services.
Forward-Looking Statements: Except for historical statements and discussions, the statements in this news release constitute "forward-looking statements" within the meaning of federal securities law. These statements contain management's beliefs based on information currently available to management and on various assumptions concerning future events. Forward-looking statements are not a guarantee of future performance or events. They are subject to a number of uncertainties and other factors, many of which are outside the company's control. Factors that could cause actual results to differ materially from those in the forward-looking statements herein include general economic, business and financing conditions; availability and cost of capital; changes in laws, regulations or regulatory policies; weather conditions; competition; governmental actions; and other presently unknown or unforeseen factors. These uncertainties and factors could cause actual results to differ materially from such statements. PHI disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. This information is presented solely to provide additional information to further understand the results and prospects of PHI.
